Managing in the Next Society 3

Part II Business Opportunities
Chapter 7 Entrepreneurs and Innovation
Chapter 8 They’re Not Employees, They’re People
Chapter 9 Financial Services: Innovate or Die
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In Chapter 7, Drucker discusses entrepreneurship. Entrepreneurship should be thought as a discipline. It should be managed systematically. A traditional perspective, i.e. relying on a flash of genius, cannot be relied on to maintain competitive leadership. On the one hand, two countries good at managing innovation systematically are Japan and Korea. On the other hand, the US should not be complacent with its seemingly leadership in entrepreneurship.

All large companies, especially in America have to able to improve (kaizen), extend, and innovate to maintain leadership. There are four pitfalls often committed by entrepreneurs. First, they tend to insist the planned designs and reject unexpected successes. Second, they focus on profit, not cash flow. Third, they forget the necessity of management team in anticipation of the business growth. Fourth, they focus on inside perspective, not outside. When the business already grows well, an entrepreneur often ask wrong questions, such as "What do I want to do now?" The correct questions are: "What does the business really need and do I have the qualities?"

Regarding social entrepreneurship, Drucker suggests that it is more relevant than economic entrepreneurship, since America is good economically but bad socially. Health care, education, and city government organizations all need innovation desperately. Social, non-profit organizations indeed need more and better management indeed because of their lack of financial bottom line. Their missions and products need to be clearly defined. Innovations in the next few years will be needed more in these not-for-profit organizations, especially governments. The cry for leadership is less important than the cry for good systems.

Knowledge-based businesses need to have special attentions to their people whose performance determines that of the businesses. Employee management functions of multinational companies have a strong sign to split from the original companies, becoming Professional Employee Organizations (PEO’s). Knowledge workers need to be specially managed by PEO’s – themselves serving global markets for great knowledge workers – so that their special skills will thrive, like potential postdocs who thrive in research universities, or talented clarinet players who practice again and again to meet the expectation of the conductor. Japanese Sony is one of transnational businesses implementing the policy that for one needs to be a permanent employee of Sony, one must work as a temp thru a PEO (EDECO) for about six months. Sony will monitor the temp during this period and decide later.

Knowledge workers are not labor, but capital. The critical thing about capital is not the cost but the productivity, meaning that businesses need to get more from the same knowledge resource. While having employees means having liability, for most companies the next trend will not be managing employees. Nonetheless, knowledge workers are increasingly providing value or wealth. Consequently, people, not necessarily employees, are the greatest opportunities in the next society! One thing left is how PEO’s and the user companies cooperate to ensure the knowledge workers’ productivity, through managing their motivation, satisfaction, health, and well being in addition to managing their knowledge and skill improvement to greatness.

Discussing the international financial system, Drucker makes an interesting assertion. The new international financial system emerging from 1960’s and thriving since 1970’s until now has its enormous negative impact to the businesses. Therefore, businesses need to anticipate and manage within this turbulence system. They need to reinvent their businesses. More and more profit of financial service companies does not come from fees paid by their clients but from trades of their own accounts through bonds, stocks, currencies, and commodities. Trading of their own accounts becomes much more gambling. Due to the nature of gambling, significant loss incidents certainly happen to almost all of leading financial service firms. Drucker states that the prosperity of an industry will come from outside, from serving outside clients, and not from trading own accounts. In another part of his book, Drucker says that there is no profit center inside a company. Profit comes from outside.

How can financial service industries come to the current gloomy situation? Drucker argued that most innovations in these industries took place in 1950’s and 1960’s. Worse is the fact, according to Drucker, that these industries do not innovate in the past thirty years. For these industries, there are three possible roads ahead from this point. The first is business as usual that means worse and declining conditions in the future. The second is letting outside innovators mitigating and mending the chronic problems (Is islamic-sharia-based finance and economics plausible in taking this role? – Y Pan). The third is innovating and becoming self-creative destroyer. Partially, the third option does not require too much innovation, but only a bit of hard work. One answer lies on the demography.